Ever since Resolution bought Friends Provident last year, investors have been waiting for the insurer to announce its next big deal. But some in the City believe they may have to wait a while longer.

Since the Friends' deal, Resolution has been linked with a range of other targets, notably Legal & General. But analyst Andy Hughes at Icap Equities is not convinced. In a buy note today, he said:

Forget about new deals for a while, the truth is Resolution has been the worst UK performing insurance stock falling from 116p at the start of 2009. The priority of management will be to improve the share price, as any deal from here would dilute the value in the business they have already bought. While many shareholders believe that additional deals are needed for synergies, we believe this is not the case.

In particular, he said there were a number of problems with Resolution trying to taken on L&G:

The ability to buy L&G cheaply depends on the valuation placed on the insurance business and the asset manager. Many shareholders believe the asset manager to be very attractive and therefore existing management are in a strong position should Resolution try and acquire the business.

From Resolution's perspective acquiring L&G would involve buying a large spread business whose value depends on the credit spreads. If made at the current time, they could be seen to be heavily overpaying if spreads widen, something totally out of management's control.

Overall he believed Resolution should benefit from improvements in cash flow at Friends, while the international operations will see the removal of tax on payments back to the UK. At the moment Resolution's shares are up 1.4p at 80.4p.